Euro Reacts Positively to Friendly U.S. Economic Data

The Euro reversed early weakness and finished higher at the close of the New
York session. Before the opening traders were looking for the Euro to trade
choppy as investors try to balance bearish banking news, U.S. economic data
and the outbreak of the Swine Flu.

Overnight the Euro was under pressure as traders were buying the U.S. Dollar
for protection following a Wall Street Journal report that the Fed was asking
Bank of America and Citigroup to come up with more capital.

The Euro reversed its early bearishness following the release of two better
than expected U.S. economic reports. The first friendly report showed U.S.
housing prices had fallen at a slower pace than forecast. This led some traders
to speculate that the U.S. economy was bottoming. The second report was a greater
than expected increase in U.S. Consumer Confidence. This report was most likely
a positive response to the rise in the equity markets during April.

The Swine Flu breakout is expected to linger for a while as regulators track
the spread of the virus. The economic impact has been minimal so far having
been isolated to the travel and leisure industries. Should the spread of the
disease worsen, losses could eventually reach a trillion dollars worldwide.
This would have a serious effect on global economies and definitely curtail
efforts by nations to dig themselves out of the current recession.

The bias is still to the downside as traders can turn risk averse at any time.
Traders are also beginning to price in an interest rate cut by the European
Central Bank last next week.

British Pounds struggled all morning to hold on to gains following a pair
of friendly U.S. economic reports before finishing lower. Both the U.S. Housing
Prices report and the U.S. Consumer Confidence report came out better than
expected and indicated that the economy may be bottoming. This helped increase
trader appetite for risk slightly but the market was not able to hold on to
gains.

Short-term the market is feeling pressure from the stronger Dollar due to
the flight-to-safety rally caused by the Swine Flu outbreak. Longer-term investors
still feel bearish about the British Pound because of the contracting U.K.
economy and the widening budget deficit.

Losses seemed to be limited today because the news regarding the Swine Flu
remained steady. Any news regarding an acceleration of the disease will be
bearish.

Falling commodity prices should continue to have a negative effect on the
Canadian Dollar. The sharp rise in key industrial metals such as platinum,
copper, zinc and aluminum has helped the Canadian economy recover somewhat
recently but traders are beginning to doubt that these gains can be sustained
because of the continual slowdown in the U.S. economy.

The outbreak of the Swine Flu is also causing traders to sell higher risk
assets like the Canadian Dollar. The economy can suffer if wheat declines because
of a drop in demand for livestock. If the disease can be traced to hogs then
they may have to be destroyed. This would cause more weakness in the economy.

Although the main fundamentals are beginning to turn bearish for the Canadian
Dollar, traders pressured the USD CAD all day following the release of a better
than expected U.S. Housing report and a U.S. Consumer Confidence report. This
move was likely short-covering. If the Swine Flu outbreak or bad news regarding
U.S. banks breaks the equity markets, look for the USD CAD to gain substantially.

The Japanese Yen has been rallying for fourteen days. The rally may have been
caused by a reversal of the carry trade as investors hedged their positions
against a decline in equity prices. Many investors fear a U.S. financial industry
crisis following the release of the preliminary bank stress test reports.

The Japanese economy is still showing signs of weakness. Falling exports are
dragging down the economy and are expected to continue as long as demand from
the U.S. and Europe remains on a downslide.

Today the USD JPY was able to post a small gain. The rally was triggered by
better than expected U.S. housing prices and a slight increase in U.S. Consumer
Confidence. Look for the Yen to gain if equity prices continue to drop or if
there are problems with U.S. banks.

Traders are mixed about the short-term direction of the Swiss Franc. Risk
adverse traders are selling the Swiss Franc for the safety of the U.S. Dollar.
U.S. banking issues and the Swine Flu outbreak could keep downside pressure
on the Swiss Franc.

The Swiss National Bank is still campaigning for a weaker Franc and remains
ready to intervene if necessary. The goal of the SNB is to encourage the exportation
of Swiss goods and to prevent the outbreak of deflation.

Losses were limited to the downside because of a friendly U.S. Housing report
and a better than expected U.S. Consumer Confidence Report.

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Information provided in this correspondence is intended
solely for informational purposes and is obtained from sources believed to
be reliable. Information is in no way guaranteed. No guarantee of any kind
is implied or possible where projections of future conditions are attempted.